Profit warnings mount

13-01-2008

Profit warnings mount
The number of UK companies issuing profit warnings rose to its highest level since 2001 last year, a report says.

Financial services firm Ernst & Young said 384 companies had announced profit warnings, 107 of which came in the final quarter.

Analysts are concentrating on the last three months of 2007 seeking evidence that difficult lending conditions are contributing to the expected economic slowdown in 2008.

Ernst & Young saw profit warnings increasing by over 20 per cent on the fourth quarter of 2006, while one in five of these "explicitly blamed the fallout from the US sub-prime mortgage crisis and the credit crunch".

Most of these complaining companies came from outside the financial services sector, suggesting problems from turbulence on the international markets are having a direct impact on the British economy.

Howard Archer of research firm Global Insight said the report reinforced his belief that UK firms' profitability had hit its peak in the third quarter of 2007.

"We expect profitability will fall back significantly during 2008 and profit warnings will rise appreciably as markedly slowing economic growth dampens companies' sales and increasingly limits their pricing power," he said.

"Meanwhile, elevated energy bills and raw material prices will pressurise their costs. Thus, margins seem set to be increasingly squeezed."

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